Technology is advancing and job markets are evolving rapidly. To stay ahead of the curve, employees must constantly upgrade their knowledge and skill sets to keep up with the rapid globalization and competitiveness. However, up-skilling and re-skilling may require returning to school, and that has its challenges. That’s why employers are using fringe benefits like tuition reimbursement to deal with these challenges.
Fortunately, employers are stepping in and alleviating this stress with tuition assistance programs. This assistance can range from paying a portion of college tuition to full tuition reimbursement. Even though it might not be the most affordable perk in your benefits package, tuition reimbursement has a high ROI.
Does that sound like something you’d want? Let’s delve deeper and understand what tuition reimbursement programs are, how they work, why employers offer them, and how you can implement them in your organization.
Key Highlights:
- What is a Tuition Reimbursement?
- Tuition Reimbursement Benefits
- Do Employers Get a Tax Break for Tuition Reimbursement?
- How Many Employees Actually Use Tuition Reimbursement?
- Case Study of a Company that Offers Tuition Reimbursement
What is a Tuition Reimbursement?
Tuition reimbursement is an employee benefit that helps reduce the financial burden of continuing education by allowing employees to use company funds to cover part or all of their school expenses.
How Does Tuition Reimbursement Work?
Typically, an employee pays for their education upfront and then claims the money from the employer afterward. This could be for a bachelor’s or a master’s degree.
What It Covers
Tuition reimbursement is a voluntary benefit employers give their employees. That means the employer can customize the offering as they see fit. For example, some employers only reimburse tuition costs, while others cover additional expenses like textbooks, pens, school laptops, etc.
Employers can also set the conditions employees must meet to be eligible for the tuition reimbursement program. Such conditions can include:
- Program of study – Most employers only reimburse tuition on specific courses that directly affect employee performance.
- Course pricing – Employers can pay up to $5,250 annually for undergraduate degrees, but each employer can choose how much they will cover.
- Student’s grades – Some tuition reimbursement programs require a student to achieve a specific grade. These can then be broken down into categories. E.g., a student who scores an A gets full tuition reimbursement. One with a B receives 80% reimbursement, etc.
- Service timeframe – Employers expect to gain an ROI within a reasonable timeframe. They may thus require an employee to stay with the company for a given period after completing their studies.
Section 127 of the tax code stipulates that employers can pay up to $5,250 and $10,500 per year for undergraduate and graduate degrees, respectively.
Tuition Reimbursement Benefits
Benefits For Employers
Employers can benefit by offering education reimbursements because these offerings:
- Boost recruitment and retention
- Enhance employee engagement
- Increase productivity
Boost recruitment and retention
Hiring in today’s complex labor market is no longer business as usual. For one, the unemployment rate is at an all-time low, and there are possibly more jobs available than job seekers. That means the average job seeker has more options, so you’ll have to offer them more than the standard salary and benefits package.
Tuition reimbursement gives you a leg up in the talent war, saving you recruitment costs and unnecessary employee turnover. Studies show TRPs save between $1 and $1.29 in talent management for every dollar spent, depending on design and implementation.
These statistics from a recent EdAssist study to support that:
- 93% of employees use their company’s tuition assistance program to boost their employability in higher positions.
- 84% of employees chose a job because of tuition reimbursement
- 71% of respondents value tuition reimbursement more than other benefits except for healthcare.
- 8 in 10 employees who use a TRP are more likely to stay with their employer, regardless of any policy requiring them to stay.
Enhance employee engagement
Bringing in top talent is one thing. Keeping them engaged is another, and employers should ensure they don’t drop the ball. According to Gallup, disengaged workers cost $7.8 trillion in lost productivity! Moreover, the report indicates financial incentives may not be enough to tackle this problem.
Per multiple studies, improving employee engagement simply requires deliberate effort on the employers’ part to meet employee needs. What better way of achieving that than helping them develop their skills?
Helping employees meet their educational goals tells them you value their well-being, not just what they help you achieve. It also equips them to adapt to the changing workplace without losing momentum. This, in turn, increases their motivation and builds a good foundation for employee engagement.
Increase productivity
Tuition reimbursement enables employees to up-skill and re-skill. That means the employee can easily handle more tasks and fill any upcoming roles, making them more productive in the short and long term.
As digitization continues, new job opportunities are coming up. A study by the Institute for the Future (IFTF) predicts that over 85% of popular jobs in 2030 are yet to be invented. That means employers must equip their teams for the future or risk incurring millions of dollars to hire new workers. On the flip side, technology has already destroyed millions of jobs and will continue to do so.
Benefits For Employees
- Sets them up for raises and promotions – More education usually means more money. In most professions earning a master’s degree increases the holder’s salary by about 20%. It can also unlock a new professional level and make the holder eligible for promotions.
- Safeguards the future – A high-quality degree program equips learners with diverse and relevant skills that help them navigate the changing job market. It also makes them more marketable if their current position becomes obsolete or if they want to switch careers to stay ahead of the curve.
- Gives employees added credibility – Higher education programs equip students with specialized skills and expertise. That makes employees more competitive and improves their social standing among their peers.
In this case, offering tuition reimbursement can be a win-win for both employers and employees. Firstly, it helps the employees retain jobs by re-skilling them. Secondly, it allows employers to save training costs and keep the team intact. Thirdly, it creates happier employees, which boosts morale and productivity.
Do Employers Get a Tax Break for Tuition Reimbursement?
Tuition reimbursement offers tax savings to employers and participating employees. Under federal tax law, this benefit is a qualified educational assistance program, so the reimbursements are omitted from the employee’s taxable income.
Generally, an employer gets a tax break for tuition reimbursement if they meet specific requirements:
- They have a written tuition reimbursement plan.
- The plan may not offer other benefits that can be selected instead of education.
- Assistance does not exceed $5,250 per calendar year for all employers if the employee has more than one.
- The plan should not favor highly compensated employees.
How Many Employees Actually Use Tuition Reimbursement?
You’d think employed workers would be jumping at the chance to get quality education and improve their career prospects without having to choose between school and work. However, available data suggests that not enough employees benefit from employers’ education and training programs.
According to a study by the Lumina Foundation, employers spend about $28 billion on tuition benefits annually, but only 2-5% of employees utilize them. Worse still, 43% of workers do not even know if their employers offer these benefits!
For the most part, the low participation rates can be blamed on employers. Some don’t inform employees about it for fear more employees will utilize them and increase costs. Others are worried they’ll develop talent and then lose these employees to competition.
Even in companies where employers proactively encourage employees to utilize this benefit, other factors come into play:
- Most companies require an employee to stay on for a specified timeframe or pay back the money the employer spent on their tuition.
- Most programs aren’t prepaid, so the student must still raise money first without being sure they will recoup the costs.
- Some tuition reimbursement programs are limited to specific majors in select colleges.
Case Study of a Company that Offers Tuition Reimbursement
Many companies offer some form of tuition assistance, including reimbursement. Discover Financial Services, a leading payments services company, is a prime tuition reimbursement program example.
Between 2010 and 2013, Discover invested $7.4M in its tuition reimbursement program. 558 frontline call center agents (Agents) and 552 corporate function workforce (Non-Agents) participated in Discover’s TRP during this period.
At the end of this period:
- The TRP produced 144% ROI, confirming talent investment does indeed pay off.
- It had a 4-year utilization rate of 3.5% (2.5% for Agents, 6.6% for Non-Agents)
- For every $1 spent on the TRP, Discover got back its original investment and avoided $1.44 in talent management costs. This translated to $10.9 M in net savings annually
- 21% of participants were promoted, and 9% transferred
- Employee retention increased by 0.5%
- Absenteeism reduced by 4 days per month among participating employees
- Annual wage increased by 46% for participants
“This study helped prove what we already knew: Investing in our employees helps our customers, helps the community, and provides significant business value.” – Jon Kaplan, Chief Learning Officer, Discover
Before conducting the study, Discover employees were required to complete one year of full-time employment to qualify for TRP. This is no longer needed; employees can apply for the program on day one of their employment with Discover.
Additionally, Discover has created diverse education assistance programs that help employees fund their post-secondary education from accredited colleges and universities. Their tuition assistance and reimbursement program offers up to $2,500, $5,250, and $10,000 for associate, bachelor’s, and graduate degrees, respectively.
Over 2,000 employees have utilized these programs since 2018, costing the company $20M+ in tuition. It has also increased retention rates by 1.4x and made participants twice as likely to be promoted.
Ask About Our Tuition Reimbursement Program
If you are interested in exploring ways to set up a tuition reimbursement plan at your company, we would love to help you! Feel free to schedule some time with our experienced benefits experts at your convenience.
FAQs
Q: Does Tuition Reimbursement Cover Student Loans?
A: College tuition is expensive, so some degree programs may need more financial resources than a tuition reimbursement program covers. That may mean seeking more financial aid, like federal student loans. The good news is that tuition reimbursement does not always lock students out of other financial aid.
However, it may affect need-based financial aid status and limit how much the employee is awarded. In many cases, that means getting lesser student loans than they’d have gotten if they didn’t have tuition reimbursement.
Note: Students must report how much they get in tuition reimbursement from their employer in their application for student loans.